EU summit set for divisive debate on implementing climate goals

European leaders are on a collision course over the looming impact of radical emission targets on their citizens and businesses as the cost of going green hits home across the EU.

A summit in Brussels on Monday and Tuesday is set to be dominated in part by discussions on how to decarbonise swathes of the European economy so that the bloc can meet its goal of reducing CO2 emissions by 55 per cent by the end of the decade.

In particular, the summit may blow into the open the distributional questions at the heart of the green agenda as it will impact voters’ disposable incomes by driving up household energy bills, pump prices and food costs.

Officials expect a divisive debate that pits richer countries in western Europe against their poorer and more polluting counterparts in the south and east. In a sign of how contentious the debate may prove, ambassadors clashed on Friday over the meeting’s draft environment conclusions.

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One EU official said the summit would see leaders “reaffirm their sensitivities, their priorities” on the climate debate, warning that many of the trade-offs would be “very tricky to solve”.

One of the biggest battles will be how to set emission goals for industries not subject to the EU’s carbon-pricing mechanism, as well as controversial plans to broaden the scope of this emissions trading scheme (ETS) to sectors such as the car industry.

Poland is leading the charge for substantial financial compensation to cushion the blow from the EU's upcoming plans, which it says will disproportionately target the poorest and most vulnerable households in its fossil-fuel dependent economy.

In July, the European Commission will then propose the legislative measures that lay the legal pathway for the bloc to hit its revised target of at least a 55 per cent reduction in carbon emissions by 2030 – up from a previous commitment of 40 per cent.

Brussels will propose a series of far-reaching measures, including the potential expansion of the ETS to retail sectors such as cars and heating. If it goes ahead, households will have to shoulder part of the cost of Europe’s record carbon price in their heating bills and fuel pump prices. The EU’s carbon price has surged beyond €50 a tonne of carbon in the last month.

The commission will also unveil its design for a carbon border levy on imports. The measure is backed by EU companies such as steelmakers, which are worried about being undercut by higher emitting foreign competitors. But it has already triggered concern in Russia, Ukraine, Turkey and other EU trading partners.

Brussels will also put forward new renewable energy targets and update its regulations on forestry to boost Europe’s carbon sink.

Striking a deal on this raft of commission measures will be an unprecedented feat for the EU, which has embarked on one of the most radical decarbonisation agendas of any developed economy. The EU aims to become the first continent to hit net zero carbon emissions by 2050.

But the nature of the bloc’s 27 member states, with their diverse economic models and energy mixes, means finding agreement on how to actually make decarbonisation a reality will be fiendishly difficult.

Every element has the potential to set member states at loggerheads. On forestry, for example, the Czech Republic is worried about its ability to hit its carbon reduction target because of damage being done to its huge forests by bark beetles – an issue already flagged by prime minister Andrej Babis.

Effort-sharing regulation

Leaders will also discuss how the costs of carbon reduction are shared between poorer and richer countries. Under what is known as effort-sharing regulation, which covers 60 per cent of total EU emissions, poorer states have to do proportionally less than richer ones.

The right is fiercely protected by southern and eastern countries. Yet countries such as Denmark and the Netherlands want the commission to update criteria so smaller, richer countries do not carry most of the burden of Europe's decarbonisation.

As for the other 40 per cent of EU emissions, which are covered by the bloc’s ETS carbon pricing mechanism, Brussels has to decide whether to extend the system to sectors such as buildings and cars.

Hungary is among the countries that have opposed the extension, while Poland is demanding a higher share of the system's revenues for countries most reliant on fossil fuels. Any agreement will need the support of a super majority of member states and MEPs.

Bas Eickhout, a Dutch green MEP, said the leaders' summit is being held at a "bad" time – just weeks ahead of the commission's proposals. He warned that including sectors such as cars in the ETS should not allow automakers to escape stringent national regulations on CO2 emissions that have been in place since 2019.

“Let’s hope the heads of state and leaders will give a clear message to the commission not to put all its eggs in the ETS basket,” said Mr Eickhout. – Copyright The Financial Times Limited 2021